Regulator Chooses Middle Ground For Canadian Oil Sands, Allowing Poison Pill For 90 Days

The Alberta Securities Commission (ASC) has allowed Canadian Oil Sands Inc. (COS) to keep its tactical poison pill in place until January 4, 2016, a period of 90 days from the commencement of Suncor Energy Inc.’s unsolicited takeover bid for COS. While this period exceeds the typical time that Canadian securities regulators have previously allowed poison pills to remain in place, the ASC decision effectively denied COS from the benefit of a 120-day minimum bid period in advance of the implementation of takeover bid rule changes in Canada.

What You Need To Know

• The regulator chose not to allow COS to take advantage of a 120-day minimum bid period that is expected to become the new minimum bid period for takeover bids in Canada under proposed rule changes (subject to a target board’s ability to shorten the timeframe to as little as 35 days in certain cases). The new rules are expected to become effective in early 2016.
• Until the new takeover bid rules are implemented, target boards will continue to have to justify how much time they require to evaluate and respond to a hostile bid and they should assume that they will get considerably less than 120 days.
• From the bidder’s perspective, complying with a 60-day permitted bid provision in a target’s existing poison pill is unlikely to shield it from the risk that the target will implement a second poison pill with a longer permitted bid period.

Background and Analysis

Background. On October 5, Suncor made an unsolicited takeover bid for COS that was structured as a permitted bid under COS's first poison pill which had been approved by COS’s shareholders. The bid was open for acceptance for at least 60 days (until December 4, 2015) and was subject to a minimum tender condition of over 50% of outstanding shares held by the target's independent shareholders.

On October 7, COS adopted a second poison pill which had not been approved by COS’s shareholders and contained a 120-day permitted bid period. Suncor commenced regulatory proceedings to have the second pill terminated before the expiry of its bid.

Analysis. COS’s 120-day permitted bid provision in its second pill was consistent with forthcoming changes to the takeover bid regime in Canada.¹ One of the primary reasons for the proposed 120-day minimum bid period was to address the concern of some market participants that target boards in Canada do not have sufficient time to respond to hostile bids. However, the ASC chose not to provide COS with the benefit of the proposed 120-day minimum bid period, or to allow Suncor to take up tendered shares on the expiry of its 60-day bid. Instead, the regulator sought a middle ground by providing COS with 90 days to consider and respond to Suncor’s offer―this timeframe is longer than the typical period of 45 to 60 days in which regulators have previously cease traded poison pills, but falls short of the full 120-day period that COS was seeking.

The ASC’s decision is consistent with the British Columbia Securities Commission recent approach to early adoption of the new takeover bid rules when it decided to cease trade CB Gold Inc.’s poison pill following Red Eagle Mining Corporation’s unsolicited takeover bid for the company. In that decision, the B.C. regulator also did not consider itself bound by the draft new bid rules which are not yet effective.

The ASC’s decision means target boards will have to wait until the new bid rules are implemented before they can receive the benefit of 120 days to evaluate and respond to a hostile bid. Once the new regime takes effect, we would expect that the regulators would not generally permit a target board to maintain a poison pill beyond 120 days if a bid has been accepted by a majority of disinterested shareholders and it otherwise complies with the new takeover bid rules.

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¹ For further details on Canada’s new “just say slow” takeover bid regime, see Torys’ bulletin on Torys.com